Vol 1 (2004) - Issue 2

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Voluntary Administration, Deeds of Company Arrangement and Potential Reform of Restructuring Procedures

Australia’s principal formal restructuring procedures for companies are voluntary administration (‘VA’) and deeds of company arrangement (‘DOCA’). After ten years of use, these procedures are under review, together with many other aspects of corporate and personal insolvency. This article considers a number of key features of these procedures and some of the potential areas of reform.
VAs and DOCAs were first introduced in 1992 and are contained in Part 5.3A of the Corporations Act 2001 (Cth) (‘the Act’). VA involves the temporary appointment of an insolvency practitioner to control the company and assess its options. It is a necessary precursor to a DOCA. VAs now form over one-third of all insolvency procedures commenced and are used for companies of all scales. The DOCA is one of three potential outcomes of VA and provides a flexible means for a company to agree a restructuring with its creditors.

Reform is being considered in two fora: first, the Parliamentary Joint Committee on Corporations and Financial Services (‘PJC’) commenced an inquiry into ‘improving Australia’s insolvency laws’ in November 2002, the scope of which is much broader than VAs and DOCAs. The PJC released an issues paper in May 2003 (‘PJC Issues Paper’) and numerous submissions have been made to it. The PJC has also conducted a number of public hearings. At the time of writing, it was expected that a report may be released in mid-2004.
Second, no doubt influenced by a number of recent large domestic and international insolvencies, the Corporations and Markets Advisory Committee (‘CAMAC’) has been asked by the Government to consider and report on:

- Are there particular difficulties in applying Part 5.3A to large and complex enterprises?
- If so, could the Committee recommend the most appropriate course of action to deal with those difficulties? This could include:
- particular changes to Part 5.3A to better accommodate large corporate rehabilitation cases;
- particular changes to the rarely used Part 5.1 (arrangements and reconstructions) provisions to accommodate large corporate rehabilitation cases;
- a new system for corporate rehabilitation, along the lines of Chapter 11 of the United States Bankruptcy Act; or
- any other action that the Advisory Committee considers appropriate.

CAMAC released a discussion paper in September 2003 (‘CAMAC Discussion Paper’) and in due course it should release a report with recommendations.